Philanthropy's New Ice Age: Will Social Innovation Survive the Freeze?

Forget global warming. The ice age is coming. After a decade of philanthropic investment that has produced a flowering of innovation and social entrepreneurship not seen since the late 19th century, all signs point to a flash freeze.

Over the past several months, a number of philanthropies have suspended new grant applications and limited renewals. Though most are doing so in response to economic contractions, many also are taking the time to reevaluate focus, strategies, and mission to ensure that during this critical period their funding has the greatest impact possible. A few leading funders have pledged additional reserves to support existing grantees put at risk by the loss of other revenue sources. This kind of commitment is vital, especially when it comes to supporting the many new startups that have launched over the past decade but do not yet have the stability that comes from generations of membership and funding growth. However, every prediction points toward a perfect winter storm of foundation and donor cutbacks amidst a struggling national economy.

This freeze has a cost -- today's and tomorrow's innovation. Creativity is a process that depends on momentum, and even a short break in funding can slow the forward motion just enough to make the current uphill climb too steep. A funding freeze will stifle the great ideas that are just now, and soon will be, gaining traction -- and undermine critical work with those already on the periphery, whether the margins of our communities or the edges of the social safety net. In other words, slowing our creativity today will set back our progress tomorrow.

Instead of turning a cold shoulder to the challenges we face, we offer a few suggestions based on our experiences working with groundbreaking new initiatives in the Jewish community. The lessons we've learned from the past decade's pioneers offer much to the nonprofit and philanthropic sectors as a whole.

First, we have to stop funding projects simply because they've been funded before. Too many mainstream organizations plod along bemoaning their lack of success while throwing precious resources at problems that money alone can't solve. Personal loyalties and emotional ties to long-standing projects must be balanced by dispassionate reassessments of programs that have accumulated over the past few decades. There's probably a cash-starved startup that has figured out a way to do the same thing faster, cheaper, and with greater success.

Second, while we identify what doesn't work, let's take advantage of what does. This means a paradigm shift in the nonprofit economy: applying the latest technology and best practices to everything from operations and human resources to program delivery and communication. Organizations no longer can depend on brand loyalty; programs must be impact-driven. It means abandoning extensive and expensive command-and-control overhead. And it means taking advantage of already existing social networks to scale up and out, instead of relying on formal inter-organizational alliances that may not have kept up with current needs. In the Jewish community, it means changing our measure of success from being Jewish to doing Jewish, from being righteous to doing justice.

Third, we have to reorient philanthropy -- especially Jewish community philanthropy -- to incorporate a steady commitment to future thinking and R&D. Just as healthy investment portfolios allocate 10-15% to emerging industries, markets, and products, so, too, a healthy philanthropic portfolio should allocate a similar proportion to emerging innovation and next-generation leadership. This approach would balance ongoing funding for blue chip institutions that have stood the test of time, strong up-and-comers at the mezzanine level, and dynamic start-ups with seed funding.

In short, the recession presents an unparalleled opportunity to cast a critical eye on all of our current practices.

The good news is that much of this is happening already. Emerging philanthropists and nonprofits at the forefront of social innovation already are changing the underlying economy of communal enterprise. The future of effective philanthropy is a venture model, where many approaches are funded with the expectation that only some will succeed, but with the confidence that we will learn as much from failure as from success. This is not about throwing money at projects and seeing what sticks. To the contrary, recently published research from the W.K. Kellogg Foundation ("Intentional Innovation," August 2008) found that "systematic innovation" not only is possible, but indeed "yields much more productive, scalable, and sustainable ideas over time." Intentionally innovative funders continually challenge themselves and their grantees to look outside for the best ideas and the most effective leaders to enrich their vision and strengthen their capacity.

For their part, innovative startups provide ideal experimental business models. Without bureaucracies, building funds and calcified infrastructure, startups can be very efficient at spending limited funds and maximizing return on investment. They leverage technology and existing networks to build community without marketing budgets and lengthy planning processes. They test their programming in public and then tweak as they go, responding in real-time to the needs of their market, and without the filter of cumbersome market research. And they are more likely to produce results that reflect the culture of the people they serve, rather than a rigid framework imposed from above.

The reality is that most startups operate with a recession mindset to begin with: they excel at making the most of limited resources. Without the assurance of a steady cash flow that comes with organizational maturity, they must find -- or more often, invent -- cost-effective solutions to longstanding challenges. Moreover, their overhead tends to be much leaner, as teams of two to five people master multiple skill sets to do the work of staffs twice and three times their size. And startups are compelled to work collaboratively with one another, exchanging ideas in a creative commons of peer learning and resource sharing.

As Hazon's Nigel Savage recently argued, "if we lose half a generation's worth of innovation in the Jewish community, that would be really tragic." But now need not be the winter of our discontinuity. In northern Europe and colonial America, long, cold winters brought the practice of "bundling": wrapping young couples in a bed together. It kept them warm, fostered safe intimacy, and had an unintentional salutary effect on reproduction. Today, bundling connotes marketplace efficiencies. As we contemplate the coming cold season in the philanthropic and nonprofit sectors, we need not be bound by a frozen inheritance. Together we can bundle our way to a tomorrow we choose and, in doing so, force the spring.

Shawn Landres and Joshua Avedon are the co-founders of Jumpstart, a thinkubator for sustainable Jewish innovation. Lee Meyerhoff Hendler is a trustee of the Joseph and Harvey Meyerhoff Family Charitable Funds, based in Baltimore, MD.